Bayer Deal Not Enough for Celera

On June 29, Celera Corp. (CRA - Analyst Report) announced that it has licensed five compounds to drugmaker Bayer Schering Pharma AG for detection and identification of tumors.

Although the terms of the deal were not disclosed, Celera is entitled to receive a one-time fee for exclusive access to the five targets. Additional payments are due upon achievement of certain development and commercial milestones. Celera will also receive royalties on sales if the products are commercialized.

Competitive Landscape

Celera, formerly Celera Genomics Group, has significant capabilities and expertise in proteomics, bioinformatics, and genomics. Its diagnostic products business competes with companies in the U.S. and abroad that are engaged in the development and commercialization of products and services that provide genetic information. These companies may develop products or services that are competitive with, and could be more effective and/or cost-effective compared to the diagnostic products offered by Celera or its collaborators or licensees.

Further, the testing services offered by the clinical laboratories may be easier to develop than the test kits developed by Celera or its collaborators or licensees. This is because the testing services are not subject to the same clinical validation requirement that are applicable to FDA-cleared or approved diagnostic test kits. The diagnostic testing services market is dominated by a few large clinical laboratories, including Laboratory Corp. of America Holdings (LH - Snapshot Report) and Quest Diagnostics Inc. (DGX - Snapshot Report)

Celera reported better-than-expected 1Q09 results mainly due to our low expectation following worse-than-expected financial results for the quarter ended December 31, 2008. We believe the company will face more challenges going forward. Therefore, we maintain our Sell rating for Celera shares.